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4 Steps to Mortgage Approval Despite Student Loan Debt
Student loan debt is a growing problem, and for many Americans thinking about buying their first home, the weight of that debt can be crushing. We believe that owning a home should be possible for anyone, and our real estate agents are here to help.
According to a recent report by Forbes, student loan debt is at an all-time high in 2019, with 44.7 million U.S. borrowers collectively owing $1.56 trillion in student loan debt. If you're one of them, that debt can feel like an impenetrable barrier between you and your dream of becoming a homeowner. Here's why it's not.
Getting a Mortgage With Student Loan Debt
Student debt is especially a problem for first-time home buyers, who tend to be younger and less experienced. Many student debt holders cite their debt as a major reason for putting off buying a home, despite today's historically low mortgage rates and the variety of low to no down payment mortgage options available.
The biggest question to focus on is how your student loan debt will impact your ability to get approved for a mortgage. It's important to understand how lenders will look at your debt so you can determine how to move forward.
Credit scores are a big factor, but in most cases, having student loan debt won't drag down your credit score unless you've been missing payments. Just as important is your debt-to-income (DTI) ratio, which reflects the percentage of your monthly income necessary to repay your debts.
4 Steps You Can Take
No matter how much student loan debt you may have, buying a home is not outside the realm of possibility. Here's what you can start doing today to improve your ability to get approved for a home loan, and buy your first home:
- Watch your credit score. Your credit score plays a big role when it comes to getting a mortgage. Make consistent, timely payments to improve your credit score and demonstrate your ability to be financially responsible. Setting up auto-pay for your accounts is a great way to make sure your payments are always on time. Also, keep an eye on your credit utilization—the percentage of your available credit you actually use—and keep it as low as possible.
- Improve your DTI ratio. Lenders will look at your debt-to-income ratio when deciding whether to offer you a loan, so it's important to manage your debts. This is one of the areas where having student loan debt impacts your home buying ability the most. Do your best to repay as much debt as possible, and/or increase your monthly income to improve your DTI ratio.
- Get pre-approved. Having pre-approval for a home loan will give you a much more solid picture of what you can afford. Just keep in mind that any potential lender will need to take a detailed look at your financial records before offering pre-approval, but having student loan debt does not make it impossible to get pre-approved.
- Consider down-payment assistance. A wide range of down-payment assistance programs is available, even if you have student loan debt. Options include FHA loans through the Federal Housing authority, VA loans for those who have served in the military, and USDA loans, which often include zero-down mortgages for rural and suburban homeowners. Be sure to investigate state and local assistance programs as well.
If you don't want your student loan debt to stand between you and your dream home, contact us. Our team of dedicated real estate agents is here to help every step of the way.
Note: a subscription to the Do Not Call list does not apply when requesting information from our company.
